Economic growth in Vanuatu has been low and fluctuating, as shown in Figure 3.1.
Average annual growth since independence has been 0.4 per cent; although this is disappointing, it is comparable to growth rates in the rest of the region. Immediately after independence, there was a marked decline in GDP per capita as a result of the civil disturbances that accompanied independence. There was a subsequent recovery, but in general each year of growth has been interspersed with a year or more of decline. The growth trajectory has been more favourable in recent years, with positive growth since 2003.
In addition to the somewhat modest economic growth, Vanuatu has experienced relatively high levels of population growth. As shown in Figure 3.2, the average population growth rate has been over 2.5 per cent, while in the same period per capita GDP has increased only modestly (Figure 3.1).
The economy of Vanuatu is predominantly rural, with around 75 per cent of the population living in rural areas, for the most part engaged in subsistence agriculture (World Bank, 2009; Asian Development Bank, 2002a). Traditionally, Vanuatu’s
economy was focused on the export of cash crops, particularly copra, as well as timber, beef and cocoa. However, tourism and the financial sector also play an important role, and this is growing in significance. Trends in the sectoral composition of Vanuatu’s economy are shown in Figure 3.3. The Figure shows that the contribution of agriculture to GDP has declined, while services have become increasingly important.
Vanuatu has a very open economy measured in terms of trade as a percentage of GDP;
since the early 1980s this has been above or around 100 per cent. Imports have been fairly consistently above exports, leading to a deficit on Vanuatu’s current account.
However, the deficit has been largely offset by official and private transfers, Figure 3.1 Growth rate of GDP per capita in Vanuatu, 1980–2006
Source:World Bank (2009)
Figure 3.2 Vanuatu: Population growth rates
Source:Asian Development Bank, http://www.adb.org/data/statistics
particularly the former. Aid has fallen considerably since independence: in the early 1980s, aid as a percentage of gross national income was around 40 per cent, whereas in the last few years it has been around 12 per cent. Remittances have been fairly low throughout the period (especially when compared to Samoa, where they have made up over 20 per cent of GDP in recent years) at around or less than 1 per cent. The large degree of openness and reliance on tourism and official transfers has meant that Vanuatu is highly vulnerable and dependent on external conditions.
Figure 3.5 shows trends in international tourism in Vanuatu; there has been an upwards trend in receipts, in terms of value and as a percentage of total exports, since 1995.
Figure 3.3 Sectoral composition of Vanuatu’s economy
Source:World Bank (2009)
Figure 3.4 Vanuatu’s external economy
Source:World Bank (2009)
Vanuatu’s colonial past is somewhat different from that of other Pacific island states in that it was governed by two countries, Great Britain and France. This meant that both colonial powers were responsible for their own administrative, judicial, health and education services, which resulted in much duplication and waste of resources. There also seemed to be a lack of interest in long-term development objectives, as each colonial power was preoccupied with short-term plans that were aimed at winning support from the local inhabitants against its rival. After independence, Vanuatu had to review the administrative structures and services developed and delivered by the two powers to avoid duplication and ensure a more efficient use of resources. Some of these issues, particularly those relating to education policy, remain and Vanuatu has to create a delicate balance, especially where language is concerned. The medium of instruction in schools is both English and French and sometimes it has not been easy for the country to adopt appropriate educational policy interventions.
The situation facing the country at independence in 1980 was grim, as the economy inherited by the new government was underdeveloped, impoverished and structurally unbalanced (Government of Vanuatu, 1981: 2). One of the major concerns was to rectify the structural problems that arose from the duplication of services, and the shortage of skilled labour, high illiteracy and poor infrastructure that resulted (Browne and Scott, 1989). The formal sector was restricted to the urban areas under foreign ownership and the non-formal smallholder subsistence sector was under-capitalised, with low productivity. Vanuatu was also heavily reliant on copra exports, which accounted for 80 per cent of its foreign exchange earnings; foreign trade made up 90 per cent of its GDP (Government of Vanuatu, 1981: 2).
The government that came to power at independence had the unenviable task of merging the two systems into a single structure. Its development strategy during the First National Development Plan (1982–1986) was to achieve economic self-reliance, to better utilise natural and human resources, and to diversify, strengthen and expand Figure 3.5 International tourism trends in Vanuatu
Source:World Bank (2009)
the economic base. It pursued a policy of import substitution, in line with policy trends elsewhere in developing countries, and put heavy emphasis on developing the social infrastructure. In pursuit of its objective of self-reliance, the government aimed to earn most of its revenue from import taxes and exports. It also set out to meet a larger portion of recurrent expenditure from domestic revenue, contribute some revenue to the development budget and meet its manpower requirements from the domestic pool. Its diversification policy was implemented through the establishment of a number of resource-based projects and the expansion of the tourism infrastructure.
The country made some progress in meeting these objectives, but ultimately this led to other problems which hampered the achievement of self-reliance. First, there was an inadequate level of trained human resources in both the private and public sectors which was a hindrance in the implementation of government policies. Second, it was unable to achieve certain objectives due to the unavailability of resources, land disputes and uncertainties regarding financing. However, the country was able to achieve some major developments in the agriculture sector through initiatives such as a major cocoa and coffee project, a copra rehabilitation programme, which included support for replanting coconut trees and marketing the copra produced by the farmers, a village-based fisheries project and expansion of the tourism infrastructure (Government of Vanuatu, 1981: 3). There were positive trends in the primary sector, as revenues were boosted due to increases in prices for primary products. The country also made some progress towards fiscal independence through the replacement of budgetary aids with a comprehensive range of indirect taxes (Government of Vanuatu, 1981: 3).
During the Second National Development Plan (1987–1991), development strategy shifted to consolidating what the country had achieved under the First Plan. This was partly achieved through the development of human resources and an improvement in management, together with the development of various training institutions and implementing training programmes in both the private and public sectors. To support this strategy, the government continued to invest in the social and physical infrastructure to ensure it provided the best returns from public and private sector projects. Another of the government’s broad economic policies during this period focused on investment; it encouraged investment in social and physical infrastructure.
The Third National Development Plan (1992–1996) proposed a series of initiatives in key policy areas to support the reorientation of the economy. The government formulated a national population policy that aimed to relieve pressure on land caused by population growth. In the area of primary commodities, extension services were developed to assist farmers produce crops for urban markets and for export. There was also a comprehensive review of the taxation system, with a limit on capital investment and export-oriented business concessions; exemptions of duties on raw material imports were to be phased out and the import duty rate was reduced to less than 40 per cent. In addition, a foreign investment code was adopted to promote foreign investment and a levy was imposed on a proportion of turnover for the training of ni-Vanuatu staff. Lastly, there was a review of the public services, through which public enterprises and joint ventures, particularly those in the transport sector, were to be managed on a commercial basis and privatised where appropriate. The government
discussed with development partners the possibility of using development funds for the maintenance of major infrastructure projects and considered loan finance for urban projects with cost recovery guaranteed. There was also a review of exchange rate policy.
In the 1990s, political instability and numerous changes of government delayed much-needed reform, as it was difficult to obtain consensus (Asian Development Bank, 2002a). In the early 1990s, prudent macroeconomic policies were followed, resulting in low inflation, healthy foreign reserves and low debt levels. However, in the late 1990s, severe macroeconomic problems became apparent, particularly regarding the balance of payments (Duncan and Nakagawa, 2006). In addition, many government institutions were performing badly (Gay, 2004). In general, Vanuatu’s economic performance in the 1990s was unimpressive. It was plagued by low investment, and confidence was eroded by structural weakness and a history of political instability. The country had nine successive governments between 1995 and 2005. In recognition that these deep-seated issues were a hindrance to the country’s progress, the government agreed that reform was necessary. The result was the Comprehensive Reform Program (CRP), which was aimed at arresting a perceived policy crisis and downturn in economic performance.
The CRP, initiated in 1997, was supported by the Asian Development Bank with US$20 million for the reform programme (Gay, 2004: 28). It had five main objectives:
1. Renewing the institutions of governance;
2. Redefining the role of the public sector;
3. Improving public sector efficiency;
4. Encouraging the private sector to lead growth;
5. Improving social security.
These objectives were backed up by specific goals, as well as by the actions to be undertaken by the relevant ministry or department. In terms of its impact on the country, there were those who were apprehensive about its success (Chand, 2002) and those who felt the CRP was less successful but still contributed towards the reform (Gay, 2004).
Like other Pacific island countries, Vanuatu has a history of persistent trade deficits.
How a country performs in international trade has implications for other economic indicators such as poverty, GDP per capita, human capital and social protection. The CRP, however, ignored Vanuatu’s wider problems, for example its chronic trade deficit (Gay, 2004: 30). The deficit rose from 7 per cent of GDP in 1983 to 38 per cent in 1990 (Gay, 2004: 26). These figures reflected the country’s high imports as against its exports. The trade deficit continued during the duration of the CRP programme.
The CRP could have addressed the trade deficit through measures aimed at economic volatility. Since the country is prone to natural disasters and its export base is narrow, it could have put in place measures to widen the economic base and to target other exports that were not price dependent. One of the potential improvement areas was
tourism, because of tourism’s huge potential for boosting agriculture by creating a demand for food crops, but this was also ignored. Furthermore, its reform programmes, such as the sale of government assets, which was one of a number of initiatives aimed at reducing the size of government and encouraging exports, did not materialise because the necessary legislation to facilitate competition was not approved.
The CRP had no positive impact on GDP per capita and its impact on poverty, although not quantifiable, was also depressing. In addition, it had a negative impact on government revenue. Since GDP was stagnant and the country was saddled with rising population growth, GDP per capita declined. According to UNESCO, the Vanuatu government lost over Vt3.5 billion (about US$35 million) in revenue due to the wrong sequencing of privatisation and corporatisation (Gay, 2004: 30). Therefore the fund flowing through to the rural areas for poor families was severely affected and this may have had repercussions on the alleviation of rural poverty.
One of the reasons for its apparent lack positive impact can be attributed to the way in which the CRP was originally devised. It was not carried through in a sequence which would have put in place a series of measures such as cutting start-up costs for the formation of advocacy groups aimed at facilitating an efficient implementation of the programme. This was because there was insufficient ownership by local policy-makers (Gay, 2004: 34). Furthermore, while Parliament accepted the programme, it was important that those who were to implement the policy should also accept it. The change of government in 1999 and 2000 meant that new civil servants and policy drivers were not familiar with the programme and had no ownership of it.
The CRP succeeded in addressing its first three objectives. It resulted in more transparency in decision-making and lessened the risk of abuse in the area of investment by removing ministers from the vetting process. The emphasis on good governance also bore fruit, with a public sector that became more accountable and adopted a more modern outlook. Nepotism was also tackled, with the introduction of a new public service code.
The CRP performed poorly in terms of its financial appraisal (Gay, 2004: 31).
According to the CRP document, it envisaged redirecting resources to the delivery of social services (Government of Vanuatu, 1998: 2). While education was made a priority, other social sectors such as health were also included. The impact of the CRP, however, must be seen in the context of its financial performance. In our previous analysis it was shown the CRP led to a fall in revenue, stagnant GDP growth, a decline in GDP per capita, a slump in foreign investment and a persistent trade deficit during the period. The result was a decline in the revenue available to deliver quality services in the education and health sectors. It also meant the delivery of the same level of funding, but did not enable the country to forge ahead with the expansion of the education sector to achieve the target of universal education for every child and education for all ni-Vanuatu.
Several issues remain. In recent years Vanuatu’s economy has experienced low and unstable growth, although there has been some recovery recently. Another major issue facing the country is the creation of more job opportunities for its growing population. The country’s annual population growth of 2.7 per cent, according to the
1999 census, is still high by international standards. In terms of job creation, however, the economy was only able to create 14,102 jobs in the formal sector in 1999. This falls far below the increase in the economically active population and is a cause for concern given its implication for growth and social costs.
The other issue facing the country is the need to improve its infrastructure. Vanuatu needs to expand its road system and utilities in the outer islands. Since the county is fragmented, it needs a good internal transport and communication system between the provinces. If shipping is the best and most cost-effective mode of transport, then this should be strengthened by government policy and support. Vanuatu’s domestic connectivity is poor and this affects the delivery of social services in many of the outer islands. This is why many young people have been forced to move to the capital, Port Vila, in recent years. The problem of urbanisation in Port Vila is likely to become a serious problem in the future.
3.3 The traditional social system
Vanuatu has a similar traditional social system to other Melanesian countries. Land is an important entity in the life of a ni-Vanuatu family and is the source of wealth, life and relationships.
Customary land titles are entrusted to the first-born male by the father who held the title of the land. If the first-born child is a female, the land ownership rights will be bestowed on the eldest male child in the family. If the family that holds the customary land title produces no male child, the title passes to the first-born female in the family.
Furthermore, if the customary landowner is barren, the family will adopt a male child on whom the land ownership rights will be bestowed. A female landownership system does exist in Vanuatu, but only in limited areas; most of the country follows the male ownership system of customary land.
In the traditional social system, protection of the weak, orphans, the aged and those who have fallen on hard times is a communal responsibility. The important body in this context is the nakamal. This is a community of households who are related to each other and is headed by a chief. The chief is the customary land title holder for the nakamal and he is the leader of the community. A number ofnakamals forms a tribe.
It is within thenakamalthat the social safety net exists. If, for instance, a family loses its father or mother, the responsibility for rearing some of the children will fall on aunts or uncles who are living within the nakamal. Their new guardians will be responsible for these children from childhood until the children marry. In this way, the community ensures that the children’s needs are taken care of, while lessening the burden on the widow or widower.
With regard to care for the aged, the first-born son who is living within thenakamal has direct responsibility for housing a father or mother who can no longer fend for themselves. The other brothers and sisters will not ignore their obligation to their parents, but provide assistance from time to time. Daughters who have married into
other nakamalsdo not abrogate all responsibility, but will also provide assistance for their parents through their eldest brother, who assumes direct responsibility.
The responsibility for providing assistance to those in a vulnerable position also falls on the nakamal through its members. Members of the nakamal will assist widows or widowers in the clearing, tilling and planting of new gardens. They will on occasion help them by providing wood for fuel and assist in chores that require more manpower or strength. Their assistance is unlike the Western concept, under which assistance is limited to a certain period; support is always available whenever it is needed. Such assistance is only withdrawn if a spouse marries or when children have grown and are better able to take care of their parents.